More than half of p&c insurers who have implemented new policy administration systems report improvements of more than 25 percent in speed to market and data accessibility, as well as gains in business user satisfaction, distributor service, and reduced technology risk, according to a new study by the research and advisory firm Novarica.

The report examines 37 recent cases involving policy administration system implementations. Novarica finds that 25 percent of large P&C insurers and 40 percent of midsize p&c insurers are either in the middle of a policy administration system replacement project or are planning to begin one in 2012.

One reason for the increase, according to Chad Hersh, a partner with Novarica, is the higher success rate for insurers implementing policy administration systems, but carriers have to be aware of failed projects.

“While the success rate of modern systems has indeed improved, there are still projects that fail,” said Hersh. “Often, those failures are due to a carrier’s failure to manage the project team.”

Novarica’s new report, US P&C Policy Administration Systems Projects: Averages and Metrics, was unveiled at the Core Systems Summit inChicago.

The average policy administration system (PAS) project total cost (including internal costs) at a midsize insurer was $8.7 million. At a large insurer, the average total cost was $23.5 million. Roughly half the cost was internal staff, while license and software was less than 20 percent of total project costs.

More than 85 percent of recent projects involved conversion, not additions of a new system. The majority of p&c insurers converted policies on renewal rather than prior to launch.

The vast majority of p&c PAS projects include other components beyond core policy administration such as agent portal, rating engine, underwriter workflow, billing, claims, reinsurance management, document generation, and business intelligence/reporting. Large insurers’ projects included 4.8 of these additional components on average, while midsize insurers’ projects included an average of 5.5.

Most large p&c insurer PAS projects completed their initial rollouts in less than 20 months, and their full projects within 40 months. Midsize insurers’ initial rollouts were generally faster, but full roll-outs took more than 40 months for more than one-third of recent projects.

Hersh believes the ability to include more components in a policy administration project is a significant factor for insurers considering such major initiatives?

“On the one hand, the potential benefits are much greater as a significant chunk of day-to-day business processes can be potentially revamped,” says Hersh. “On the other hand, the integration challenge and project costs can be significantly greater.”

As to the disparity in costs between midtier and large insurers, Hersh points out most large carriers have more complex integration needs.

“[Large carriers] tend to have significantly greater overhead with regard to program management, testing, and other areas due to more robust enterprisestandards,” says Hersh.

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